Op Eds & Articles
Mr. Emanuel Shahaf is the chairman of Technology Asia Consulting and founding chairman of the Israel-Indonesia Chamber of Commerce. The newly-formed Chamber is part of the broader Israel-Asia Chamber of Commerce and brings together Israeli businesses with commercial interests in Indonesia.
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Q. Why should Israel seek to develop trade cooperation with a country which does not formally recognize the State of Israel?
Trade brings people together, removes barriers and increases mutual interest in developing political relations as well. Indonesia is the world’s largest Muslim country with a mainly moderate Muslim population and, in the absence of normal diplomatic relations, alternative means should be used to develop relations between the two countries – trade being the most convenient. Once trade reaches a certain volume, the business sector tends to put pressure on the politicians to support mutual business and trade activities with government safety nets like insurance, investment protection, legal protection, export credit, etc. Also the more business there is, the more it becomes visible, and eventually we hope that the political sensitivity of trade with Israel will become a non-issue.
Q. In what sectors of the Indonesian economy will the Chamber push bilateral ties?
We will try doing it in all areas of the economy. But the emphasis will be in those areas which in our estimate the chances of success are better. The single biggest area in which Israel can make a real contribution is in agriculture. We have a lot of know-how, technology and a lot of experience, for instance, in fertigation (fertilizer irrigation) which is the application of fertilizers, soil amendments or other water soluble products to farm crops and plants through an irrigation system.
This also makes it applicable to the cultivation of field crops in Indonesia where there is no lack of water. Fertigation at this stage is less relevant to hothouse and green house cultivated crops which are only small operations and in their early beginnings.
Some of the Indonesian crops are low quality. By and large the country is independent of imports with the exception of rice (occasionally) and some grains, though high quality oranges and other fruits which are not produced locally are imported to the high end market.
Q. What priority will you give to promoting Israeli agricultural technologies and know-how?
We will try to improve the yields and quality on existing produce and start cash crops for small farmers whose typical family holding is about one hectare. Right now they are not growing anything which really makes good money, even though the basic climate and soil conditions are excellent for more profitable market produce than rice as well as industrial crops like palm oil, rubber, cocoa, tea, tobacco. Everything else is very small and in between. So, any new crop which they have not grown before and would be taught to cultivate will make a big impact on reducing poverty in Indonesia and in creasing per capita income.
The agricultural extension system in Indonesia is not in good shape because the Indonesian Ministry of Agriculture is mainly a regulatory and facilitating body without an operational budget and at the local level there is not a lot of expertise. This leaves room for private enterprise by Indonesian investors to help local farmers grow new crops by establishing cooperative ventures for collective farming, sharing of equipment, storage and marketing modeled on the Israeli kibbutz system. Israeli know-how can play a role in matching Indonesian business to profitably invest in agricultural development projects.
In the absence of diplomatic relations, it would be unwise to encourage Israeli investment in Indonesian agricultural development projects, although under certain conditions (e.g. investment through a Singaporean entity) it should be considered.
Some 46 per cent of the Indonesian labor force is employed in the agricultural sector. Industry is limited to mineral mining, gas and oil exploitation and oil refineries. The economy, by and large, is still in the extractive stage and apart from the textile, chemical and automotive industries there are few labor intensive sources of industrial employment.
Q. Does Israel have competitors in the Indonesian agricultural sector?
There are a number of countries who try to sell to Indonesia. But the challenge is one of persistence, cultural differences and the willingness to take risks. I think Israel has a relative advantage over foreign competitors in these areas, given a certain discomfort Indonesians feel towards Australians, Americans, New Zealanders and some Europeans because of Indonesian colonial memories and associations.
Political differences aside, Indonesians who work with Israelis feel very comfortable and find it easier to relate to them. We are willing to share our knowledge and we treat them as equals.
Q. What opportunities exist for R&D cooperation?
There could be in the agricultural sphere. But anything which could be officially construed as a joint venture between Israel and Indonesia is politically problematic for the Indonesian government at this stage and could draw fire to it. There are few private agricultural institutions or other kinds of private R&D facilities in Indonesia. So I would say there is less of a potential opportunity there at this time.
Q. Are Indonesian companies planning to establish representatives in Israel?
The subject is delicate. I can mention Sampoerna, one of the largest Indonesian conglomerates, whose name has been previously published so I can feel free to talk about it. Sampoerna has a representative in Tel Aviv through its association in Harel Insurance Co. where it has a ten per cent share hold. I am not aware of the presence in Israel of any other Indonesian companies but if there are, they may be operating through part-time Israeli representatives. They would definitely maintain a low profile.
In Israel, we want to bring the relationship out into the open. But in Indonesia, where there is no Indonesia-Israel Chamber of Commerce, or anything of the sort in Jakarta, we will limit ourselves considerably so as not to create problems.
Q. In view of the lack of diplomatic ties between the two countries, what difficulties or obstacles does this present to Israelis wishing to do business in Indonesia?
One problem is the bureaucratic hurdles put up by Indonesia to obtaining a business visa, hurdles which admittedly, are put up by the Israeli side with similar thoroughness. As a result, it is almost as difficult, expensive and time consuming for an Indonesian businessman to get a visa to Israel as it is for his Israeli counterpart to get a visa to Indonesia. The other major problem is the complete absence of legal protection of business activities of an Israeli entity in Indonesia. As it is, legal uncertainty is one of the characteristics of Indonesia, although the situation is improving slowly. Coupled with Israel’s status as an unrecognized entity, this burdens Israeli business activities in Indonesia with considerable risk. Additional problems are caused by the difficulties to get insurance and export credit/financing for business and trade with Indonesia. All things considered, these are pretty big challenges but worthwhile taking, and the increasing trade volumes are proof that Israeli companies have managed to solve most of the problems.
Q. Are you preparing an Israeli agricultural exhibition in Jakarta?
We will try to encourage Israeli companies to participate in exhibitions in Jakarta in conjunction with Indonesian companies and under their umbrella. All major Indonesian companies have their offices in the capital which is Indonesia’s business center. The Indonesians will provide services and the technology will come from Israel. We will not establish an Israeli pavilion in keeping with our low profile. The customers will know about the Israeli participation but it will not be given wide publicity.
Eventually, in respect of agriculture, we will try to move into the provinces whose local governments are now able to negotiate their own contracts with companies following the decentralization of powers of the last decade. This will be a big challenge, moving out of Jakarta with its simpler logistics, educated manpower and security considerations.
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The interview was conducted by Yehonathan Tommer and Rebecca Zeffert.
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